Lesson #32 Measure Market Volatility with Forex Bollinger Bands

What are bollinger bands?

Bollinger Band Indicator is another type of mathematical tool used in technical analysis. It is comprised two bands plotted at two standard deviations above and below the middle band. The standard deviations are mathematical formulas that measure market volatility and demonstrate how the “real value” of the price of the currency can be extended.

Bollinger Bands Forex: Indicators of Market Movements

Bollinger Bands show how strong the market is. When the market is modest, no abrupt price movements, continuing the current trend or making a new one, Bollinger Bands contract. On the other hand, Bands expand when the current trend exhibited strength or at the start of a new movement. A favorable trend is confirmed is when bands stretch and volume increases.

In foreign exchange transactions, when the signal appears above the band traders have the tendency to sell a position and buy a spot when it appears below the band

The Bollinger Bounce: Tracking Market Ranges

The Bollinger Bounce is an approach utilized best in the ranging market. It depends on the motion that price always bounces to the middle of the Bollinger Bands. Thus, traders purchase when the price landed on the lower Bollinger Band and sell when the price is placed at the upper Bollinger Band.

These bounces happen because Bollinger Bands are similar to mini support and resistance levels. The bands get stronger in a longer time frame. More traders are developing a system thriving on these bounces and this strategy is applicable when the trend is not clear.

The Bollinger Squeeze: Signs of Price Breakouts

The Bollinger squeeze is a method used in catching breakouts. This means that when the bands “squeeze” the price of the currency, the market is very quiet and breakout is likely to happen. Once this occurs, a transaction is made on whatever side of the price breakout.